Welcome to the Second Quarter 2016 Ship Finance International Limited Earnings Conference Call. Today's conference is being recorded. At this time I would like to turn the conference over to Mr. Ole Hjertaker, the CEO. Please go ahead, sir.

Thank you and welcome all to Ship Finance International and our second quarter conference call. With me here today I have our CFO, Harald Gurvin and Senior Vice President Andre Reppen. Before we begin our presentation, I would like to note that this conference call will contain forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Words such as expects, anticipates, intends, estimates or similar expressions are intended to identify these forward-looking statements. These statements are based on our current plans and expectations and involve risks and uncertainties that could cause future activities and results of operations to be materially different from those set forth in the forward-looking statements. Important factors that could cause actual results to differ include conditions in the shipping, offshore and credit markets. For further information, please refer to Ship Finance's reports and filings with the Securities and Exchange Commission. The Board has declared a quarterly dividend of $0.45 per share. The dividend represents $1.80 per share on an annualized basis or nearly 12% dividend yield based on closing price of $15.16 yesterday. This is the 50th consecutive dividend and we have now paid over $1.7 billion in dividends since 2004 which is more than $21 per share. Aggregate charter revenues recorded in the quarter including 100%-owned subsidiaries accounted for [indiscernible] investment in associate was $159 million and the EBITDA equivalent cash flow in the second quarter was approximately $128 million. Last 12 months, the EBITDA equivalent cash flow has been $545 million from our assets. The reported net income for the quarter was $38.8 million or $0.42 per share. This is after more than $6 million of non-cash mark to market of interest rate swaps and other non-cash items. Adjusted for these items, the net income would have been…

Thank you, Ole. On this slide, we're shown a pro forma illustration of cash flows for the second quarter compared to the first quarter. Please note that this is only a guideline to assess the Company's performance and is not in accordance with U.S. GAAP. For the second quarter, total charter revenues before profit share were $143.4 million or $1.53 per share, slightly down from $146.2 million in the previous quarter. Revenues for Suezmaxes were down in the quarter due to lower revenues from the two Suezmaxes trading in the short term market. Revenues from liners were up in the quarter following delivery of the second and third of the container vessels to Maersk line in February and May, respectively. The three vessels were the [indiscernible] earnings effect in the third quarter. Earnings from offshore were down due to the sale of the offshore supply vessel Sea Bear in the first quarter and the jack-up drilling rig Soehanah being idle in the second quarter. We recorded a profit share of $14 million under the 50% profit-share agreement with Frontline, down from $24.7 million in the previous quarter. The tanker market softened towards the end of the second quarter and has remained soft into the third quarter. We also recorded a profit share of approximately $100,000 on rig into some of the [indiscernible] driver carriers. Revenues from financial investments were slightly up in the quarter, mainly due to increased dividends received on our shareholding in Frontline. But overall, this summarizes to an EBITDA of $128 million for the quarter or $1.37 per share, down from $139.5 million in the previous quarter. We then move on to the profit and loss statement as reported under U.S. GAAP. As we have described in previous earnings calls, our accounting statements are slightly different than…

[Operator Instructions]. We will take our first question from Richard Diamond from Strait Line Capital. Please go ahead. Your line is open.

I have two lengthy questions. The first question is can you address the opportunities that are being created for SFL, as lesser-quality credits do not have access to ship financing? And I know in the short term it hurts residual values, but I would think in the long term it could create interesting opportunities for SFL. The second question would be can you speculate on the impact of the Hanjin bankruptcy today? While the financial press seems to be ignoring it, ships and cargoes are being arrested globally. Would one expect a quite -- a flight to quality by transportation managers to the Maersks and Haphagloids of this world?

On your first question, yes, we do see opportunities. We're, I would say, constantly screening potential new transactions and will of course -- if and when we do things, we will of course make any proper announcement. I do think that we see more opportunities with the relatively stronger charter in counterparties -- also as you alluded to, because financing institutions, in particular the banks, are getting way more restrictive, is our impression and they really want stronger companies backstopping deals before they want to extend loan facilities. Also because we have access to other various capital instruments, we're present in bond market, we're present in the convertible loan market, equity market, et cetera. That again gives the banks a good comfort that we have access to different sources of capital and not only the bank market capital. We haven't done any new deals and haven't announced any new deals the last six months. But if you look over time and over the last 10 years, is down around $7 billion of new transactions. So on average, it has been a good healthy number and we have increased our backlog. I am confident that we will find other good interesting investment opportunities also going forward and I would say all across our investment segments. And even though offshore seems to be quite soft now, we also think that that could also be an opportunity where you could potentially invest in reasonably priced assets and get good charter coverage. But as I said, we cannot comment on deal specifics because we do announce that if and when we do something. To your second question, we cannot comment specifically on Hanjin. We observe the same thing as you do in the news that they are in the process of filing for court protection. And I think it is too early to tell exactly what impact that will have for the vessels to have in their own fleet and also their charter fleet. I would say that we have seen several chartering opportunities over the last couple of years with that name and also with, I would say, other relatively soft names from a credit perspective. We have refrained from doing long term charters with those entities simply because of the risk of this happening. So our focus in the liner side has been to deal with the stronger market leaders and then hopefully avoid situations like we see in Hanjin today where vessels seem to be arrested.

[Operator Instructions]. We will now take our next question from John Reardon from Western International. Please go ahead. Your line is open.

I would like to start out by saying I've been following Ship Finance for a number of years. And at the risk of sounding like a cheerleader, I want to commend you and your team for doing a great job in managing this Company through what has been difficult conditions from time to time. Given the cyclicality of this business that you address, are we seeing any green shoots or elements of that? I once was told that the cure to high prices is high prices and the cure to low prices is low prices. Are we seeing any of the low-price cures starting to show up?

Well, we certainly have seen the pressure on secondhand values and we have also seen yards quoting lower prices to fill an increasing gap in the backlog they have. This is not unusual. I would say this is a classic sizable feature in these markets and we have to remember that the segments we're in, shipping and offshore, are notoriously cycled and have always been that. And one of the elements of this is the, call it, seeming disconnect between the supply and demand side where the shipyards, i.e. the supply side, they don't really care much about how much money the ship owners make or whether a specific vessel is profitable enough. They really just want to build it. At the same time, we see ship owners in peaking markets getting very bullish and start ordering vessels maybe at peak prices. And also unfortunately we see the banks in peak markets that's when we typically see banks willing to extend more leverage. So, again, trying to be disciplined in this market, we think that's the way to go in order to build a long term sustainable business model and I would say there is no surprise in what's going on. Perhaps the offshore -- you would call it the offshore prices has been deeper than many anticipated, but we think that that is also going to recover and certainly if you own quality assets.

We will now take our next question from Magnus Fyhr from Seaport Global. Please go ahead. Your line is open.

I had a question on the payout ratio, I mean at 64%, it is very low compared to your peers. And just looking going forward, with the potentially lower profit-sharing from Frontline, there was about 30% of the last 12 months distributed cash flow and also some in-surge [ph] regarding Seadrill. You have a lot of cushion there but how comfortable are you? Maybe you can talk a little bit about how that ratio could be a little bit higher going forward.

Yes, you're absolutely correct. We have what I would call a healthy payout ratio. If you look at the last 12 years, we had nearly $100 million difference between what we define as distributable cash flow and actual dividends declared. And if you look at the aggregate profit share from tankers, that is less than the difference between the payout ratio and the distributable cash flow. So you could argue that you take away all that cash flow from the tankers and you still would support the dividend capacity. And at the same time, if you look at the whole Seadrill, I would say in a meltdown scenario where there was no cash flow at all from Seadrill, the net cash flow there in the last 12 months was around $60 million, again, well below the difference between the distributable cash flow in the dividends. So I would say that it's a -- and then on top of that, we have more than $240 million of available cash. So we have good investment capacity that could, we hope, be put to use to build a distribution capacity. So we think there is a good cushion and we think it's prudent to be disciplined. And while we have investment capacity, we focus on trying to do the right deals. And we try to focus on doing the deals that was generated in long term returns for shareholders and not get tempted and spend it all on the first deal we see.

Right. Are you comfortable to mention any levels, 75%, 80%? Is that a comfortable level?

Well, we don't have a specific percentage level target. Over time, we have paid out the higher relative percentage. I think it's sort of in the 70% to 75% range over time, if you look at it over the last 12 years. So we're definitely below the average payout ratio. I would say the dividend which is set on a quarterly basis by our Board, is based on a long term sustainable basis more so than I would say quarter-to quarter performance because as we know, the results may vary from quarter to quarter. We focus long term.

Thank you. There are no further questions. And I would like to turn the program back to the speakers for any additional or closing remarks.

Thank you. Then I would like to thank everyone participating in our second quarter conference call. If you have any follow-up questions, there are contact details in the press release or you can get in touch with us through the contacts pages on our webpage, www.shipfinance.bm. Thank you.